52 Pages Posted: 14 Mar 2014 Last revised: 14 Jan 2017
Date Written: January 10, 2017
Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more tax. Overconfident CEOs are more likely to overestimate the net benefits from investments in tax planning and thus avoid more tax. Consistent with this prediction we find robust evidence of a positive relation between proxies for corporate tax avoidance and CEO overconfidence. Because our empirical tests use a panel of firm-years with exogenous CEO changes and include controls for stationary firm effects as well as observable firm characteristics, we are able to isolate the role of an idiosyncratic personality trait (i.e., overconfidence) on corporate tax outcomes, thus adding to the literatures on overconfidence, managerial effects, and tax avoidance.
Keywords: Overconfidence; tax avoidance; manager effects
JEL Classification: D80, M40, H25
Suggested Citation: Suggested Citation
Chyz, James and Gaertner, Fabio B. and Kausar, Asad and Watson, Luke, Overconfidence and Corporate Tax Policy (January 10, 2017). Available at SSRN: https://ssrn.com/abstract=2408236 or http://dx.doi.org/10.2139/ssrn.2408236